Gold Loan: The new guidelines of the Reserve Bank of India are going to bring a big change in the ‘gold loan’ sector. Lenders who have the ability to change their business model quickly will be able to benefit from these new rules. This information was given in a report released by S&P Global Ratings on Thursday. The report believes that lenders will have more freedom to lend short-term loans for gold-backed consumption loans, allowing small borrowers to get more value from their pledged gold assets.
Lenders have time till April 1, 2026 to prepare for the changes. The report gives information about two elements of the new rules. The first is to include interest payments till maturity in the calculation of the loan-to-value (LTV) ratio. This can effectively limit the advance loan amount to be disbursed, which lenders will try to overcome. The second is the application of loan evaluation based on borrowers’ cash flow analysis for consumption-focused loans over $3,000 and all income-producing loans.
According to the report, adjustments in credit assessments will be larger for non-bank financial companies (NBFCs) with major gold-based loan books such as Muthoot Finance Ltd (BB+/Stable/B) and Manappuram Finance Ltd (BB-/Stable/B). NBFCs need to develop risk management policies and processes to evaluate borrowers’ repayment capabilities based on cash flows.
The report points out that traditionally, they have relied on collateral valuations. Bridging the skills gap to hire and train loan officers to assess repayment capacity is both an upfront cost and a barrier for these lenders.
The report highlights that there is potential for quick adjustments in the model. It expects lenders to gradually increase the proportion of shorter-term products with three-month and six-month maturities. The report said that this change would benefit low to middle-income borrowers.
The report believes that the latest RBI rules provide clarity on renewing loans. The rule now mandates that renewal is only subject to full repayment of interest. The report also expects an increase in income-generating loans. According to the report, even though lenders are experimenting with new models, the real difference will remain that they will be able to disburse loans quickly and seamlessly. IANS
